Wednesday, October 3, 2012

Cutthroat capitalism and the 52/20 club

Lane Kenworthy has a long but pithy post questioning the claim that "cutthroat" capitalism spurs innovation. The whole thing is worth reading but this passage in particular got me thinking:
The really interesting question posed by Acemoglu, Robinson, and Verdier is whether innovation would slow in the United States if we strengthened our safety net and/or reduced the relative financial payoff to entrepreneurial success. I’m skeptical, for three reasons.

The first flows from America’s past experience. According to Acemoglu et al’s logic, incentives for innovation in the U.S. were weakest in the 1960s and 1970s. In 1960 the top 1%’s share of pretax income had been falling steadily for several decades and had nearly reached its low point. Government spending, meanwhile, had been rising steadily and was close to its peak level. Yet there was plenty of innovation in the 1960s and 1970s, including notable advances in computers, medical technology, and others.
I think we can take this even further. The entire quarter century following the WWII was marked exceptional innovation and growth and yet there were a number of factors (taxes, unions, large government payrolls, etc.) that reduced pay-outs for economic winners and risks for losers. Many of these factors involved programs for veterans (a huge group at the time). Of these, the most relevant might be one known, disapprovingly, as the 52/20 Club.
 Another provision was known as the 52–20 clause. This enabled all former servicemen to receive $20 once a week for 52 weeks a year while they were looking for work. Less than 20 percent of the money set aside for the 52–20 Club was distributed. Rather, most returning servicemen quickly found jobs or pursued higher education.
You don't hear much about the 52/20 clause these days. I first came across it in a film called the Admiral Was a Lady about a group of airmen living on their pooled unemployment checks (if you're interested in the period you might check it out but be warned: despite the cast, it's not a very good movie).

There was some grumbling at the time at the time (the term "gravy train" was thrown around), but on the whole, Americans in the years after the war (with the Depression still fresh in the collective memory) seemed to be inclined to believe that those who needed a hand should get one. This attitude did not seem to have hurt us in terms of growth or innovation.

There's one more notable implication of the history of the 52/20 Club. We've heard claims recently that unemployment insurance causes people to stay unemployed, but the history of this program suggests that this effect disappears when people can actually find work.

No comments:

Post a Comment